Mortgage Affordability Calculator

It’s time to chat about affordability. Let’s look and see if you can afford that piece of property with our mortgage affordability calculator.

When you start your real estate search, one of the biggest things you have to ask yourself is if you can afford that ideal property. Whether you are looking at a condo, or a home, a great tool to see if you can afford that dream home is via a mortgage affordability calculator.

Our in-house tool has been set up to ensure that you can see the actual monthly expenses with buying a home. There are a ton of things that you might not think about, and thus, we look to help you see what you can afford, besides the monthly payments that your mortgage broker will provide. Let’s jump into what we mean when we talk about mortgage affordability.

What is mortgage affordability?

When we talk about mortgage affordability, we are talking about how much you can afford to borrow based on your current household income, debt payments and expected living expenses. This might seem complicated, but it is necessary to see what you can afford to avoid stretching yourself too thin and making yourself house poor. The worst possible situation is locking in a mortgage that you cannot afford for years and leaving yourself struggling to meet your basic needs. Thus, we have designed our tool to help educate potential home buyers to find a mortgage that they can afford and still get the most out of the home.

Let’s step back and take a look at what we mean when we say affordability. Affordability is naturally tied to the place where the home is located. Living in downtown Toronto will be a little more expensive than living in a rural community outside of Fredericton, for instance. When we talk about affordability in this article, we are looking at more than just the overall housing affordability; we are looking at the home’s affordability within the city that you will call home. It is nuanced but essential to ensure that you understand the calculator and understand the data it will produce.

As the real estate market is nothing short of hot, many borrowers will want to see the maximum mortgage they can afford. Our calculator will provide that for you, but you need to know what goes into this calculation. We will take into account the household income of the borrower, or combined household income if it is more than a single person, the personal monthly expenses including student loans, car loans, utilities, line of credit and any other costs, as well as the expenses that you will typically see as a homeowner including property tax, condo fees, heating costs, electricity costs and potentially mortgage default insurance costs. With all of this data, we can provide you with a detailed affordability number to let you know the actual maximum mortgage you can afford. We should note, this number might be different than your maximum mortgage via a lender, as lenders are not paying your monthly bills; you are.

How to estimate mortgage affordability

As we mentioned above, lenders utilize two specific calculations based on your current debt service ratios. The rule of thumb used in the industry is that you do not want your mortgage, also known as your housing costs, to cost more than 32% of your gross income. As well, your total debt load, which includes credit cards, lines of credit, heating costs, car loans and your household costs, should not exceed 40%.

Lenders will look at these ratios and determine if you are a suitable candidate for a mortgage. As we noted above, lenders will also complete a stress test where they will test your numbers against a significant rise in the interest rate provided by the Bank of Canada. This test protects both you and the lender from assuring that neither of you is entering into a contract that could be troublesome. Remember, your debt ratios consider everything from heating costs, car loans, student loans and lines of credit, so being as accurate as possible while also eliminating these costs before you go to secure a mortgage may be beneficial. So let’s look into some details on how you should estimate affordability in your situation.

Maximum limits

As we noted above, the general guidelines on the GDS and TDS are 32% and 40%, but borrowers can move past those limits in some instances. This kind of action is generally reserved for borrowers who possess good credit and have a steady income coming in. Jobs in sectors such as government, education and banking would fall into this category. For those who are self-employed or work in the retail or hospitality sector, you may struggle to get past the general guidelines.

Most lenders do not post their maximums, but from experience, the vast majority allow for GDS to be as high as 39% and the TDS to be 44%.

As of July 1, 2020 CMHC has put limits for GDS and TDS for mortgages that it insures. Their limits are 35% for GDS and 42% for TDS. These changes do not include other default mortgage, insurance vendors.

Our calculator provides you with the option to use either of these percentages and as a fully customizable tool, we will continue to provide our users with this option.

Down payment and mortgage insurance

The down payment is the benchmark that lenders use to determine what your maximum affordability is going to be. The down payment ignores the tricky math and allows lenders to know how much the principal mortgage will be compared to the home’s cost. Here are a couple of simple calculations that can help you figure out how much your maximum affordability will be.

Scenario A

If your down payment is $25,000 or less

Down payment divided by 5% is your maximum affordability.

Example: A $10,000 down payment would give you $200,000 maximum affordability.

Scenario B

If your down payment is $25,001 or more

(Down Payment amount minus $25,000) divided by 10 % plus $500,000 is your maximum affordability.

Example: $30,000 down payment would give you $550,000 maximum affordability.

Remember, if you put down less than 20%, your mortgage is a high ratio mortgage and by law has to be insured with mortgage default insurance. This insurance does have an insurance premium which you can find out more about at the CMHC website.

Cash requirement

One thing to consider is every lender will also have an additional cash requirement that is separate from your down payment and any CMHC insurance costs that will happen. This cash requirement is generally going to be between 1.5% and 4% of the home’s total selling price. The cash in this account should be there for at least 30 days, and you need to have some paper trail of where it came from.

The cash requirement is actually to take care of your closing costs on the home. These costs include the lawyer costs, title search costs, title transfer fees, land transfer tax and any other costs to the professional closing the home. You will also need to access a portion of your down payment when you offer and get accepted for a home. As you generally need to put a cash deposit down with the homeowners before transferring the remaining down payment and lending information to your lawyer, who will in turn transfer funds on closing day.

How much can I afford?

This is the million dollar question for many Canadians. Affordability is all about finding out how much you can afford for your mortgage payments while also considering other costs associated with living in a home and the rest of your monthly debt payments.

Our tool can help you see how much you can afford in an easy to understand way and use a calculator. When it comes down to it, the goal of owning a home owns a piece of your future. It is an investment in you, your financial goals and your retirement. It is more than a home; it is an opportunity for you to prosper and enjoy the finer things in life. That is why it is essential to understand what you can afford versus a lovely home with an expensive home price. Plus, for many, the costs of owning a home can be a bit of a surprise.

Think about it like this, after you buy a home, you are also responsible for any of the following home expenses that may be applicable. You have the principal and interest over the amortization period, heating costs, property taxes, mortgage insurance, water and sewage taxes, condo fees and of course, an annual payment of upkeep of the home. If a fridge goes, you need to replace it. There is no landlord or parent to jump in and do it for you. A home purchase is a considerable financial commitment for 25 years or less. Our affordability tool will help you prepare and educate yourself on the mortgage details and total cost of owning your piece of paradise.

You may be saying that I might get a promotion, or I might have x. That is true, but the current you is the one that will be paying the bills. You don’t want to have to take out multiple lines of credit or deal with skipping out on experiences just because you are house poor for the time being. Affordability is about setting yourself up, for now, the short-term and long-term.

Gross Debt Service

The Gross Debt Service (GDS) ratio looks at the total monthly housing expenses that you will need to pay for a mortgage against your monthly income. Housing costs will include things such as your monthly mortgage payment, property taxes, heating expenses and half of the condo fees (if you are buying a condo). You will need to add up all of these costs to help calculate your GDS ratio.

You can calculate your GDS ratio by taking your annual gross income and dividing it by 12. You will then take that number and times it 0.32. That answer should be less than the monthly expenses that you have listed for housing costs. If it is, you are in an excellent place to move forward; if it is not, then you may struggle to secure a mortgage that you can afford.

Total Debt Service

To calculate your total debt service, you will need to account for any debts you or your partner may pay for. This can include student loans, lines of credit, car payments, credit card payments and any child or spousal support payments.

You will then take the total monthly income calculated for your TDS and times it by 0.40. The answer should be less than the calculated debt payments you are currently paying. The ideal situation is any number below 40% .

The Stress Test

Finally, most major lenders complete what is called a stress test as part of their terms and conditions. Stress tests are different from the tests that are conducted for what you qualify for. The stress test guidelines ask lenders to test your mortgage amount and affordability at a rate of 2% higher than the negotiated mortgage rate or currently 4.79%. The stress test point is to see if you can still afford payments if the interest rate rose quickly.

For a total monthly payment, we need to run some numbers.

In this instance, we will use the following numbers to answer the below questions; the mortgage payment is based on $500,000 with 5% down and with CMHC mortgage default insurance premiums. The total mortgage would be $494,000 for the 25 year amortization period. The numbers break down like this:

Property Tax: $256 per month

Heating: $60 per month

Condo Fees: $400, we use half the cost for the stress test, so $200

Mortgage Payment: $2,927 per month

Every person’s situation is different, and thus, our tool will allow you to plug in your numbers to see what is affordable for you and not our generic examples!

Why calculate mortgage affordability?

One of the most powerful things you can have as a first time home buyer is knowledge. Real estate is a confusing and often intimidating proposition, so it is important to empower yourself with what you can afford. What your maximum mortgage based on mortgage affordability is, is a great stepping stone to success in the market. You are setting more than just your monthly payments; you are determining how your money will be used for the entire amortization period.

Our tool is more than just your maximum purchase price or maximum mortgage; it is a tool to help you plan your monthly budget. You might know about or have even considered a ton of expenses, and our tool will provide them to you.

The tool will help tell you if you have enough cash to consider starting at step 1 of the search or if you need some more time to save. It will also allow you to see the costs of an insured mortgage required if you put down less than 20% or if your minimum down payment is enough to avoid mortgage and housing corporation premiums.

Further to that, our tool will help you see how affordability is more than just your mortgage payment, and you have to consider your current monthly debt payments. No matter your situation, or location, mortgage affordability will help you find out if, when and how much you can expect to afford on your annual household income.

Finally, as said, knowledge is half of the battle in the ever-competitive real estate world; knowing what your mortgage may cost and seeing the numbers on paper will help set your mind in the right direction. You will fall in love with homes you cannot afford, and although you think you might be able to afford that extra $100 per month, the tool will show you why that is an issue. Trust the process, and use this information to help guide a discussion with a mortgage specialist to find that sweet spot between the maximum purchase price and affordable mortgage amount.

3 ways to increase your mortgage affordability without increasing your household income

When you are considering how to increase your affordability, many easy ways can undoubtedly help. Here are a few steps that anyone can do, and depending on your situation, you might be able to make your mortgage amount a little lower and your monthly payment in a better position.

Save for a larger down payment

One of the longer term options that you can do to better your position is to save more money for your down payment. A larger down payment will allow you to shop around for your mortgage and ensure that you can lower the overall monthly payment that you will be paying during the next 25 years. As well, if you can pay at least 5 per cent or more, you will enjoy a lower overall mortgage. Remember, the minimum down payment is 5%, and anything less than 20% requires CMHC insurance. Thus, if you can save enough to put 20% down, you will avoid CMHC mortgage default insurance premiums. This can save you tens of thousands of dollars over the term of your mortgage.

Shop around for your interest rate

We live in a world where you can shop around for your interest rate. A mortgage specialist would be the best person to chat to, but a lower interest rate is possible at different shops, depending on your current situation. For instance, BMO offers RCMP and present Canadian Armed Forces a lower than advertised mortgage rate. As the larger big five banks continue to struggle to provide clients with meetings quickly, many mortgage brokers and individuals look at smaller specialized lenders. These specialized lenders generally offer what the big five are offering and can even be cheaper. The rule of thumb that has developed over the last few years is that a CMHC protected mortgage will get a lower interest rate than those with at least 20% down. This is not a surprise, as CMHC or the other Canadian options for mortgage default insurance guarantee their mortgages to lenders. While if you do not have mortgage default insurance, the only guarantee is yourself! So, long story, short, you need always to shop around, and don’t take the first mortgage rate offered to you.

Increase your amortization period

Lastly, one of the ways to increase your affordability is to increase your amortization period that it will take to pay off the total of your loan. For CMHC mortgage default insurance, you can have a maximum of 25 years. Simultaneously, those who are not limited can have an amortization period as long as the lender allows you. You do have to remember that an increase in the amortization period means that you will be paying additional interest for that time. It is a complicated decision, and it is best to chat with your specific lender or a mortgage specialist.

Our tool is a great resource, but it is designed to guide a conversation with a lender or a mortgage broker. The more information you have, the better and more accurate your discussion will be. No matter your situation, our calculator will be a tool that you can trust to empower your financial decisions.


How much do you have to make a year to afford a $500,000 house?

Using the exact numbers, as above, but slightly changing the mortgage amount for an expected interest rate, let’s say, 3.5%, you can run the math. Your mortgage payment would drop to $2,466, which would mean that your monthly expenses are $2,982.

Remember, you want to be at or below 32% to see if this mortgage is affordable.

Here is the math:

Gross annual income of $113,000 divided by 12 is $9,417

$9,417 times 0.32 equals $3,013.

Thus, you can make the minimum gross annual income to afford a $500,000 home with a 5% down payment, and associated costs would be $113,000 or two salaries of $56,500. As we stated above, this is a particular scenario, and thus your circumstances and numbers will change the results. This is the beauty of our tool, as you can quickly check and see what an ideal purchase price would be and how much mortgage you can afford in these low interest times.

Every person’s situation is different, and thus, our tool will allow you to plug in your numbers to see what is affordable for you and not our generic examples!

How much mortgage can I get with $70,000 salary?

For varieties sake, let’s use a different set of numbers for this question. If you are looking to purchase a home with a single $70,000 gross income in Alberta, some math shows what you could afford using some broad numbers.

You have saved up for a down payment of $25,000

Your current monthly expenses are $2,548

You will be taking a CMHC default mortgage insurance premium as you are putting down 7.8%. The CMHC mortgage insurance will add $11,859 to your mortgage total.

As well, your mortgage is secured at 2.2% a little above the Bank of Canada rate in early 2021 with a 25 year amortization period.

The house you could afford in this particular example is any home at or below $321,485.

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